Investing, Asset Allocation, Economics & the Search for the Bottom Line

Private Payrolls Beat Expectations In June

Payrolls increased in June by substantially more than projected, the Labor Department reports. The economy added 262,000 private non-farm jobs last month vs. May, well above Econoday.com’s consensus forecast of 210,000 (or the Capital Spectator’s 235,000 median prediction). Good news, of course, but not quite a clear and unambiguous sign that the labor market’s growth is accelerating beyond the pace we’ve seen before the economy hit a speed bump earlier this year.
We’re leaning closer toward a bullish tipping point in the wake of this morning’s release, but the numbers du jour still fall within the range of increases we’ve seen in recent history, albeit with a new bias to the upside. Consider that today’s 262,000 advance in private payrolls in June, although relatively high vs. the last several months, is still below the best monthly gains in the past three years. Private jobs jumped 278,000 in April and 272,000 last November. The post-recession high-water mark is still January 2012, when private payrolls surged 364,000 on the month. (By the way, the focus on these pages on private payrolls rather the popular headline number that includes government jobs is an effort to track data that’s more sensitive–i.e., more informative–regarding the business cycle.)

Monthly comparisons are noisy, of course, and so a stronger measure of the trend can be found in the year-over-year percent change. By that standard, the annual rise of 2.13% through last month is the best in seven months but still below the strongest rates of growth since the Great Recession ended in mid-2009. Just last year, private payrolls increased at annual rates slightly above 2.13% for six straight months through November 2013.

But let’s not go off the deep end with nitpicking by emphasizing changes at the second decimal point. The main event today is good news: the annual growth rate is inching higher, moving closer to the best rates posted in the last several years. Even better, today’s jobless claims report shows that new unemployment filings are sticking close to a seven-year low, which suggests that the upbeat data for payrolls will roll on for the near term. The generally positive tailwind for the big-picture macro profile of the US economy only strengthens the case for optimism.

For now, we can say with a high degree of confidence that that winter deceleration in the economy was temporary. The theory that the macro trend would revive in the spring is now fact, based on the hard data available so far. The debate about whether the economy’s simply returning to its previous trend of moderate growth or something better is still an open debate. But that’s an encouraging discussion vs. the alternative scenario that some of the darker-minded analysts had conjured in recent months.